§ The Chief Secretary to the Treasury(Mr. Paul Boateng)Cash Ratio Deposits are non-interest bearing assets deposited with the Bank of England by banks and building societies. They are used by the Bank to finance its unremunerated activities, in particular its sterling liquidity operations and its efforts to secure price stability and the stability of the financial system in general, from which these institutions are key beneficiaries. The Cash Ratio Deposit Scheme was placed on a statutory basis when the Bank of England Act became law in 1998. In February 2003, the Paymaster General announced by written statement a review of the operation of the statutory scheme in its first five years.
64WSThe review has reached the following conclusions. The cash ratio deposit scheme continues to be a suitable method of funding the Bank of England's monetary policy, financial stability and sterling liquidity operations. The definition of eligible liabilities, from which deposits are calculated, should not be brought into line with the definition of deposits used by the Financial Services Authority (FSA) as a basis for calculating the fees it collects from deposit taking institutions. This is because the Cash Ratio Deposit scheme is aimed at sterling deposit taking institutions, whereas the FSA's regulatory activity, and its definition of deposits, also covers foreign exchange deposits. The cash ratio for calculating deposits should remain at 0.15 per cent. The Government will keep the ratio under review. The minimum threshold for making deposits should be raised to £500 million, freeing 18 institutions from the scheme and benefiting all remaining contributing institutions by reducing the level of their deposits by £150,000 each. The Bank of England should consider ways in which the transparency of the scheme could be enhanced, for instance by publishing a more detailed breakdown of expenditure by function. The Government will continue to monitor the effect of the cash ratio deposit scheme under review and will conduct a further formal review at the latest in five years' time.
The proposal to raise the minimum threshold for making deposits would require a change to secondary legislation under the Bank of England Act 1998. HM Treasury is therefore consulting publicly about this change and inviting views on the other proposals of the review.